It is becoming increasingly popular to leverage vendors with consignment inventory programs. Under these programs the vendor will provide equipment to you whereby you report and pay for the equipment only when sold. This proposes an accounting nightmare as you do not want to maintain a payable to the vendor, sitting and aging, and similarly do not want to include the value of this equipment in your inventory. This said, you still need to track and account for the equipment as you would any stocking item.
The software provides you the ability to identify specific items in your inventory as consignment inventory. Purchase orders are created for consignment goods, these purchases will DEBIT a Consignment Inventory GL Account and Credit and Accounts Payable GL Account instead of the normal Debiting of Inventory and Crediting of Payables. The AP Bills for these received consignment goods will not be displayed under your AP aging reports.
When you sell the item, relieve it from your inventory, it will CREDIT the associated Consignment Inventory GL Account and DEBIT your Cost of Goods Sold account recognizing the cost of the equipment to your Financial Statement.
When you report your sold goods to your consignment vendor they will invoice you for the items consumed. When these “Consignment Invoices” are received, you enter them using a “Consignment Bill Wizard”. This process will list all consignment items received from consignment purchases that have not yet been paid.
Seeding your Stocking Quantity
In most cases your vendor will NOT be invoicing you for your initial stocking quantities. This said we recommend that an inventory adjustment be made to initialize or otherwise adjust your preferred stocking level. To initialize your inventory you would Debit Inventory and Credit your AP Consignment Account. This can be accomplished on the inventory adjustment screen as demonstrated below.
Because this method requires an informed user we recommend this be a supervised process.
Purchasing for restock
You cannot have consignment and non-consignment items on the same Purchase order or Voucher.
Create your PO Normally for your consignment items. Note, the AP account will be your NORMAL AP Payables Account. (Displayed at the bottom right of the screen.) This Account will be offset to the AP Consignment Account when the PO is received.
The WH can be ANY Warehouse. You can commingle consignment goods with standard stocking items in the same warehouses.
Receiving the PO
Receive normally with the exception that you will be required to key an invoice number for Consignment Purchases. You can use your PO number as your invoice number if receiving everything on the Document. Each receipt must have a unique number.
Under the covers – Upon receipt the AP Voucher is created, debiting your consignment inventory account and crediting your Consignment Payables account. It should be noted that if you were to view your AP GL Transaction Log you would see a transaction running thru your AP Account negating this transaction by posting an offset to your AP Consignment account. These Vouchers may be viewed under your vendor history. In your history listing they will always have a zero balance. If you open the document, you will see the total potential liability for this purchase. The word “Consignment Invoice” will be displayed in red at the bottom left corner of the screen.
Selling the Item
The item is sold normally and will be posted to COGS or Invoiced as you would any stock item. Upon sale the Consignment Inventory Account is credited and Cost of Goods Sold is debited.
Posting Bills for Sold Consignment Goods From Vendors
You must use the AP Consignment Bill wizard to post Bills for sold consignment items. This is located on your AP Navigator. Launch the wizard and key the vendor ID you are posting a consignment invoice for followed by the date range of receipts from this vendor you are looking to match the vendor invoice against. (It is necessary to provide a date range to search pending receipts.) You can leave the Consignment AP Account blank to see all pending receiving documents that you have not yet been invoiced.
Next select the matching receiving document you are posting the invoice against. If the cost does not match the original receiving document you may adjust it here.
Next enter the Department, traditional Accounts Payable Account, Invoice number and posting date for the invoice that will be created. Click finish to create the invoice.
Upon completion a new invoice will be created under your vendor that will Debit the AP Consignment GL account and Credit your Traditional Accounts Payable account.
It is critical to note that the item code used for the transaction is NOT the Inventory Item code originally purchased. Placing a traditional item code on the AP Voucher would cause your inventory to be overstated. This Inventory was accounted for when receiving the original Consignment Purchase Order.
- Create a Consignment Inventory Account
- Create a Consignment Payables Account
- Set your Consignment Payables Account under Company and Branch setup, on the Inventory Tab.
- Set the is a Consignment Item Check Box
- Set the GL Inventory Account to your Consignment Inventory GL Code
Perform a traditional inventory adjustment reducing your inventory levels posting to the Consignment Inventory and Cost of Sales Accounts.
Replenish the item as if sold by creating a consignment PO to vendor to replace
Adjustment STANDARD STOCKING LEVEL up/stock
If you are adjusting your standard stocking inventory up or down you should perform an inventory adjustment using the “Seeding Method” noted above. This should be considered a supervised transaction and only performed by a trained and informed user.
- You cannot have consignment and non-consignment items on the same Purchase order or Voucher
- You cannot Auto Purchase Consignment items, PO’s MUST BE MANUALLY CREATED
- Stock Transfers and Inventory adjustments work normally
- ITEMS must be STOCK items